The Continuing Retirement Savings Crisis

A new research report calculates that the U.S. retirement savings crisis continues to worsen, and that the typical working household still has virtually no retirement savings.

The report, The Continuing Retirement Savings Crisis, examines the readiness of working-age households, based primarily on an analysis of the Survey of Consumer Finances from the U.S. Federal Reserve System. The study analyzes workplace retirement plan coverage, retirement account ownership, and household retirement savings as a percentage of income, and estimates the share of working families that meet financial industry recommended benchmarks for retirement savings.

The key findings of this report are as follows:

1. Account ownership rates are closely correlated with income and wealth. Nearly 40 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA. Half of these households with no retirement savings are headed by someone between age 45 and 65, and may have too few year to catch up. Households that do own retirement accounts have more than 2.4 times the annual income of households that do not own a retirement account. While retirement account ownership improved for households in the third highest income quartile with 75.6 percent of households holding assets in retirement accounts, retirement account ownership in the lowest income quartile dropped to 21.4 percent in 2013 down from 25.7 percent in 2010
2. The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households. Furthermore, 62 percent of working households age 55-64 have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
3. Even after counting households’ entire net worth—a generous measure of retirement savings—two thirds (66 percent) of working families fall short of conservative retirement savings targets for their age and income based on working until age 67. Due to a long-term trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of working households cannot meet even a substantially reduced savings target.
4. Public policy can play a critical role in putting all Americans on a path toward a secure retirement by strengthening Social Security, expanding access to low cost, high quality retirement plans, and helping low income workers and families save. Social Security, the primary edifice of retirement income security, could be strengthened to stabilize system financing and enhance benefits for vulnerable populations. Access to workplace retirement plans could be expanded by making it easier for private employers to sponsor DB pensions, while national and state level proposals aim to ensure universal retirement plan coverage. Finally, expanding the Saver’s Credit and making it refundable could help boost the retirement savings of lower-income families.